Inflation is increasing: economists are significantly increasing their economic forecasts

The prospects for the German economy have improved significantly over the past six months. Economists are setting their forecasts significantly high. But the expert committee's report does not only contain good news.

Economists have more than doubled their forecast for economic growth. In its annual report, the committee assumes that the German economy will grow by 1.3 percent in 2026. In the spring, the five experts had still expected growth of 0.8 percent. According to the report, the economy is likely to weaken again to 1.0 percent next year.

The body officially called the Council of Experts for the Assessment of Overall Economic Development officially handed over its report to the federal government today. It also includes calls for significant austerity and federal budget reforms to close a growing gap between revenue and spending in the coming decades.

While the economy is growing faster, inflation is increasing at the same time. For the current year, economists expect consumer prices to rise by an average of 2.8 percent. Inflation is likely to rise to 3.3 percent next year. The drivers of inflation are import prices, especially energy prices, which rose sharply in the wake of the Iran war.

Important factors behind the improved forecast are, above all, exports, which developed significantly better than expected in the first half of the year. In addition, the Federal Statistical Office revised last year's gross domestic product slightly upwards, which improves the economy's starting position for 2026. Economists emphasize that the German economy is now growing significantly for the first time since 2022, despite the burden of high energy prices.

Despite the increased forecast, the picture that the report paints is not clear. “However, the economic picture remains mixed,” say the experts. Export growth is likely to weaken, particularly in countries outside the EU. In addition to higher US tariffs and the Iran war, growing competition from China is putting a strain on German industry's exports. In addition, economists assess the prospects for the global economy as “cautious” due to, among other things, the consequences of the Iran war. The main pillars of growth in the coming year are likely to be consumer spending as well as government infrastructure investments and defense spending.